Court OKs FAO reorganization plan

JenniferWaters

KING OF PRUSSIA, Penn. (CBS.MW) -- Investors propelled shares of FAO Inc., trading in the pink sheets, higher after a bankruptcy judge gave his nod to the company's reorganization plan.

The approved reorganization comes only 83 days since the toy retailer filed for Chapter 11 protection.

Judge Lloyd King approved the plan under which FAO Inc.
FAOOQ
can get out of bankruptcy with $77 million in financing -- a $67 million revolving credit line from a consortium led by Fleet Retail Finance and a $10 million term loan from Back Bay Capital Financing.

The company, which operates the FAO Schwarz chain, also has crafted a deal with a group of investors led by Kayne Anderson Capital Advisors to purchase $30 million in convertible preferred stock.

It's unclear how much equity existing shareholders will hold once the preferred stock and securities are doled out to creditors and investors, said Alan Marcus, a spokesman for the company. At this point, the company is estimating about 11 percent of outstanding equity on a fully diluted basis.

The reorganization does not affect FAO Schwarz's plan to open so-called "stores within a store" at Saks Fifth Avenue retail properties beginning this summer.

As part of that deal, Saks Inc.
SKS, -7.13%
is expected to take an equity position in FAO Inc. as well, though Marcus said he couldn't comment on how much that would be.

The FAO Schwarz sections will be tested in 18 Saks stores beginning in August, with a nationwide rollout in all 250 Saks stores by the end of the year.

"This is a great partnership that makes a lot of sense for both of us for a lot of reasons," Marcus said.

FAO Inc. filed for Chapter 11 protection on Jan. 13, listing assets of $257 million and liabilities of $238 million.

Since then, FAO Inc. has closed a combination of 113 FAO Schwarz, Right Start and Zany Brainy stores. A total of 140 remain open.

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